Valparaiso: Firefighters backed by police and soldiers have battled for a third day a massive blaze that killed 12 people and ravaged a huge swath of Chile's historic port city of Valparaiso.

Officials say it could yet be another two or three days before they succeed in extinguishing the fire, the worst to hit the city, consuming 2000 homes and forcing thousands of people to flee for their lives.

Some who refused to leave homes were killed when the inferno swept in.

Hardest hit have been Valparaiso's poorer neighbourhoods, perched precariously on the coastal city's tinder-dry hillsides, where dwellings built mostly of tin and wood quickly became engulfed in flames.

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Thick smoke settled over Valparaiso on Monday, and ash from the fire rained down on the city's historic port, which so far has been spared the wrath of the blaze.

President Michelle Bachelet has declared the ravaged area a disaster zone, allowing the armed forces to assist in relief efforts and take control of security.

"We are in a situation of permanent emergency," Bachelet's Defense Minister Jorge Burgos told local radio, adding that the fire poses "a very complex situation".

At least 11 helicopters, six planes and 2000 police and soldiers, in addition to battalions of firefighters, are battling the blaze.

They have been heartened by a forecast of cooler temperatures and higher humidity.

The city, an architectural gem located about 120 kilometres from the capital Santiago, is famed for its UNESCO-listed centre with cobblestone streets and brightly painted wooden homes.

The fire broke out on Saturday, and whipped up by winds, quickly became a fast-moving inferno. So far it has destroyed 850 hectares and forced 10,000 people to evacuate.